Fund offering 'venture capital' exposure sends investors on meme-like ride

By Suzanne McGee April 23 (Reuters) - A new fund that allows shareholders access to privately owned technology companies has sent investors on a wild ride in recent weeks while eliciting criticism from the likes of Morningstar and competitor ARK Investment Management. Shares of Destiny Tech100 (DXYZ.N) are up some 200% since its March 27 launch, following a tumultuous three-week run that has seen it rise by as much as 1,172% from its debut price of $8.25. The fund’s shares closed Monday down 13.1% at $24.68. The fund owns stakes in about 25 private technology and growth companies, including SpaceX, OpenAI, Instacart and online payments processor Stripe. It plans to update its holdings on a quarterly basis, and creator Sohail Prasad said last month that he would like it to eventually hold 100 companies. It currently has a market capitalization of $276.46 million. Last week, it filed with the SEC for a secondary stock sale of up to $1 billion in new shares. Though it’s not the first fund of its kind, Destiny Tech100 appears to have caught the fancy of the meme stock crowd, which has helped fuel furious swings in shares of everything from GameStop (GME.O) to more recent offerings such as Trump Media & Technology Group (DJT.O) . Prasad founded DestinyTech 100 in late 2021, with the goal of giving wider access to a diversified pool of pre-IPO companies that are usually reserved for high-net worth investors. “These are companies that people know and love and often use in their daily lives, but can’t invest in unless they’re wealthy,” he said. He sold 200,000 shares of the fund on April 16 at a price of $24.65, a day it traded at about $43 a share and the same day the fund filed for a secondary offering. Prasad still owns 1.08 million shares, according to the SEC filing. Shares of the fund hit a 52-week high of $105 on April 8. Other funds have offered similar products - including ARK Investment Management, the firm headed by Cathie Wood. The ARK Venture Fund debuted in September 2022 but has been slow to attract investors, resulting in them paying higher ownership costs than originally estimated. A year ago, ARK offered waivers and reimbursements of those fees, capping them at 2.9%. That fund now has total assets of $53.7 million. Destiny Tech100 levies an estimated fee of 4.98%, according to its SEC filing. Speaking to Reuters following an event in London, Wood said the rival fund’s structure and fees mean investors face “a much higher price point” in exchange for daily liquidity. In a note to investors, ARK last week argued its approach to pre-IPO investing is better than Destiny Tech 100’s, saying it offers a share price closer to the net asset value of the shares and shareholders can redeem up to 5% of the fund’s total assets quarterly. “We believe liquidity matters most,” Prasad told Reuters in e-mailed response to the ARK critique, adding “we made it simple” by allowing investors to buy and sell shares of DXYZ via their existing brokerage platforms. Prasad added that he appreciates that ARK’s comments have helped educate investors about the concept. “There’s a lot of structural change occurring in the private markets and it is great to see another forward-thinking firm try to drive innovation and progress.” Morningstar also published its own criticisms of Destiny Tech100 last week, targeting some of the same issues raised by ARK. “Investors would be wise to stay on the sidelines” in light of the fund’s structure, Jack Shannon, senior manager research analyst at Morningstar, said in a report. “Destiny Tech100′s massive premium represents a unique opportunity for investors to enrich others at the expense of themselves.” Prasad declined to comment on Morningstar’s assessment.